News about core banking solutions is becoming increasingly prevalent in the financial services sector, as incumbent institutions seek to update their ageing systems while neobanks and fintechs get quickly off the ground with modern technologies.
In the current, fast-paced climate, the ability to deliver tailored products and services to consumers is key. As such, businesses operating in the financial services sector seek out core banking solutions that are both flexible enough to enable them to move with the market, whilst being reliable and robust enough to handle the heavy workload that comes with being a financial institution.
Traditionally, the core banking solution sector had been dominated by a few key players, but that is no longer the case. There is now a new generation of core banking solution providers, each bringing their own unique flavour to the market. Here, we explore the old school and the new school, and look at some of the defining characteristics of each.
What is a core banking solution?
Core banking solutions (also known as core banking systems) are the back-office software systems that power the operations of financial services providers and support their most common transactions.
Typically, these core banking solutions include deposit, loan and credit processing capabilities with interfaces to general ledger systems and reporting tools, with functionality varying from vendor to vendor.
Naturally, core banking solutions carry a heavy workload. They power the operations of the businesses they support, which can mean anything from a singularly focused fintech to a sprawling banking institution. The cost of failure can be catastrophic, so making the right decisions is paramount.
In recent years, owing to consumer demand and market pressures, many financial services providers have been turning towards more customer-friendly core banking solutions, additionally introducing automation and advanced data processing to fine-tune operations. However, these features must also be weighed up with the overall functionality and robustness of the core banking solution; legacy systems and next-generation systems tend to excel in different areas.
Legacy core banking solutions
Legacy core banking solutions are the mainframe-based platforms that have been used by financial services providers for decades. These solutions may have been built in-house, or procured from one of the more long-standing vendors on the market. Being that these solutions have been around for many decades, they have more than proven themselves as being reliable and capable of handling even the heaviest workloads of banking institutions,
However, the legacy technology, proprietary data models, and limited ability to interface with other systems means that these legacy core banking solutions restrict the ability of financial services providers to rapidly deliver new experiences, products and services. Financial services providers seeking to differentiate themselves and launch current offerings will therefore be wary of legacy systems which can hold back their ability to innovate.
Read on: Global pandemic showed that legacy systems must go
Next-generation core banking solutions
Unlike their legacy counterparts, next-generation core banking systems are cloud native and boast modern, scalable, flexible, and open architectures. As a result, these next-gen solutions provide a greater amount of agility, flexibility, and scalability, allowing the financial businesses that use them to quickly launch new products and move with the market.
These next-generation core banking solutions have been designed to support the customer-centric approach most financial institutions are now adopting. This support is built around three key principles featured in the next-generation solutions:
- Cost effectiveness
- High-speed transaction systems
- Future-readiness/resilience
Given that these next-generation core banking solutions are relatively new, their functional scope is generally not as broad as their legacy counterparts. Often, the supplier will need to provide an initial offering, and then add further breadth and depth as the relationship with their clients progresses. This is a risk, and one that needs to be balanced against the rewards when making procurement decisions.
Choosing the right core banking solution
A good core banking solution supports the business both today and long into the future. Banks have run into many issues by allowing their core banking solutions to become obsolete, and are now paying the price. Particularly in the new digital economy, legacy banking systems can prove to be a major obstacle to growth.
For a core banking solution to be effective, it must be built to last, and provide the right degree of agility, flexibility, and scalability. Download our whitepaper to find out more about how to make the right choice.